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Relationships, Investing, and 1 "Real Value" Stock Pick

John B. Sanfilippo & Son, is not only a better value than Diamond Foods, it could be be the next Beam.

What do relationships and investing have in common? They both tend to go sour when you over-think them.

Image courtesy of Dr. Phil

Don't worry, I'm not going to go "Dr. Phil" on you. But investing is really best when it's thought of as a relationship. When you "trade," based on the near-term predictions and technical indicators that financial gurus spout out, it's the financial equivalent of taking marriage advice from a reality TV star. Don't do it!

You're portfolio will be better off if you seek a long-term commitment, and invest in quality businesses. You just have to focus on a few simple concepts when you're seeking out an appropriate mate. Let's talk a bit today about value investing done well, and why I think John B. Sanfilippo & Son(NASDAQ:JBSS) may be a stable partner for you, it could be the next Beam(UNKNOWN:BEAM.DL).

John B. Sanfilippo & Son, a stable partnerThis little known business is one that you should have on your watch-list. It's a simple, family run, nut manufacturer that seems boring on the surface. While Emerald nuts maker Diamond Foods(UNKNOWN:DMND.DL)may seem like the sexier pick, its track record of up and down performance and accounting scandals makes for a less certain investment.

With his deep family roots, I trust CEO Jeffrey Sanfilippo to not soil this business' ninety-two year run of success. Beyond stability, this is a business that is growing. In its most recent quarter, Sanfilippo saw an 11.1% increase in net income, a 4.4% rise in net sales, and it's coming off an all-time high in annual revenues.

The concept of Real ValueWarren Buffett, Peter Lynch, Joel Greenblatt, and countless other investing legends have co-mingled the concepts of value and growth investing. What frustrates me about some value investors is that they tend to jump into an investment first because it looks cheap, rather than assessing its growth potential.

Even Warren Buffett, who most value investors idolize, has said it's pointless to analyze a "rapidly declining business." After-all, what is more valuable than growth? The search for growth at a reasonable price, which I consider "real" value investing, is what makes John B. Sanfilippo look enticing, not simply its low P/E of 11.

Here are a few intangible assets that add to this stock's real value; they're difficult to value by numbers and metrics alone.

Brands and market-cap'sThis business is the parent company of Fisher nuts. While it also recently acquired Orchard Valley Harvest, Fisher's brand habituation provides a moat that rivals Planter's; it offers, for instance, the only peanut sold at Wrigley Field, and "iron chef" Alex Guarnaschelli is an ambassador for the brand.

The truth is, that good brands are rare and valuable. Beam and Heinz recently showed us that boring, yet well known, brands are ideal buyouts. With its low market cap of about $250 million, John B. Sanfilippo could make an ideal buyout target; after-all, Beam's market cap (now at $13 billion) made it a constant acquisition possibility for larger competitors (Diageo, etc.). Eventually Suntory purchased Beam; without quality brand recognition, and a low(er) market cap, this wouldn't have happened.

Will this small nut manufacturer be taken private? Maybe, maybe not. I'm simply noting that a small market cap, and a renowned brand, make it very possible.

Still, even without an acquisitions, a small amount of outstanding shares and great brand give this stock room to run.

Image courtesy of Fisher nuts

TrendsThe most valuable thing this stock has going for it is the positive trends it has at its back. American's are eating healthier, and John B. Sanfilippo is well aware. It launched an ad blitz (with the FDA's blessing) in 2004 touting the health merits of nuts, and it hasn't relinquished. Literally, it's plastered all over their website showing their focus is exactly where it should be.

In recent years consumers have moved to nutrient rich "fats," like nuts and oils, that are more natural as their snack of choice. Going forward, I expect these treats to continue to supplant snacks like chips, cookies, and fried foods since the health benefits are tremendous! If you agree with me, then you should consider health trends as an "asset" in your valuation of the stock.

Foolish conclusion: I'm courting John B. SanfilippoWith Fisher nuts and Orchard Valley, John B. Sanfilippo is solely focused on the nut business. I believe that gives it an edge over businesess like Diamond Foods, which manufactures chips and pop-corn.

We've talked about the added value of healthy trends, and "Beam-like" brand identity, but finally the stock is simply cheap. At 11 times earnings, and only 0.35 times sales, it's not unreasonable that this stock could double on valuation alone. A multiple of 22 would be warranted for a well run business.

This is a simple (if not boring) business, but don't over-think its value proposition! Great trends, growth, and value, should lead you to a fruitful long-term union with this stock.

Adem Tahiri doesn't own any of the stocks mentioned, but he owns put options on Diamond Foods.The Motley Fool recommends Beam. The Motley Fool owns shares of John B. Sanfilippo & Son. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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I'm addicted to learning everything there is to know about labor market trends, consumer trends, and behavioral finance; join me here and on twitter: @adem_tahiri
I still believe that great investments are born when a strong business meets a game changing trend. Blog: commontulip.com